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5 Reasons Why Diversity is Crucial to Small Business Success

Diversity is the cornerstone of comprehensive and well-informed business strategies and innovations. Without diverse economies and workforces, humans would become less nuanced and slower to adaptation. The workplace, in particular, would lack perspective, laying the groundwork for short-sighted business models.

Small businesses especially can — and should — utilize the opportunities for diverse thought in the workplace by hiring people of all backgrounds and fostering inclusive work cultures.

According to the latest 2015 research from the Small Business Majority organization, 69% of small businesses have at least one female employee, 24% employ at least one Hispanic worker, and 18% hire at least one African-American employee. The statistics rapidly decrease amongst other demographic groups indicating that the workplace needs to be more equal.

There are five reasons why small businesses should implement diversity as a necessity during the hiring process:

1. Increase Productivity

Mounting evidence shows that diversity in small businesses can offer increased productivity and many competitive advantages. According to a University of Michigan study also reported that diverse groups that offer more nuanced perspectives can find solutions better than homogeneous teams. Yet another study found that diverse teams deflated asset bubbles showing more cohesive teamwork. Real world evidence also highlights that diverse teams benefit from improved productivity. When examining 366 global companies in various industries, more evidence showed that ethically and gender diverse teams over-performed compared to teams with less diverse workers.

2. Improve Creativity

Small business employers who also hire diverse groups of workers can foster a sense of creativity and innovation in the workplace. The Harvard Business Review shows that creativity can be enhanced via diverse teamwork, but for innovation to thrive between diverse teammates, knowledge sharing is required. Research identifies higher levels of creativity within teams that are interconnected especially when creative and intrapreneurial leaders manage these team units. EthnoConnect, a consulting firm that specializes in workforce diversity, highlights that when employees from different backgrounds work together, they can bring various solutions on how to achieve a shared goal. The more solutions that are offered, the better opportunity the teams have to successfully approach a problem. Employees from one country may approach a creative or strategic issue in a completely different way from someone who is American-born. When small businesses can take ideas from several different employees, they can formulate the best suggestions from each viewpoint to improve their goals.

3. Generate Better Profitability

Research from McKinsey & Company shows that companies in the top tier for gender, racial, and ethnic diversity in the workplace are more likely to create financial returns higher than national industry medians. In addition, diverse executive leaders, on average, bring in 53% higher returns on equity all the while offering higher performance value and innovation in their industries. Of note, companies with at least one woman on the board of directors showed 66% higher returns on investment capital than companies with fewer or no women on the board.

4. Create Stimulating Work Cultures

Small businesses, especially, are known for their small, close-knit workplace communities. Intimate, diverse work cultures have the opportunity to develop a well-rounded rapport with one another and the environment can also provide opportunities for employee growth since it challenges insights into problems while offering multicultural perspectives. Employees can take advantage of differing viewpoints that help the team grow together. As evidence of the link between diversity and productivity, the Harvard Business Review cites a 2009 study which examined multicultural vs. colorblind perspectives of 4,000 employees in 18 various work units. The results found a correlation between groups of workers who agreed that racial and ethnic differences should be recognized/celebrated and agreed that disparaging was bad with the fact that minorities in those groups were able to feel engaged in their work. While this supports the hypothesis of improved productivity, it also demonstrates that diverse work cultures who support each other can stimulate dynamic and immersive experiences for all of its employees. In fact, a Diversity in Groups study from Harvard University cites research that diverse teams exhibited higher reflexivity, an ability of someone to self assess one’s thoughts or actions, which resulted in increased performance, commitment and satisfaction.

5. Attract a Wider Talent Pool

Finding the right talent and the right perspective for a small business can be limiting in small businesses with niche industries. Part of a company’s employer brand is to showcase the attractive qualities of the workplace and what makes the small business stand out from larger corporations. One way to attract a wider talent pool is to highlight diversity. A 2014 Glassdoor survey found that 67% of job seekers say a diverse workplace is an important part when considering a company’s job offer. Employers feel the same way. In an EIU survey, over 82% of CEOs responded that a dedicated strategy to manage workplace diversity can lead to a better talent pool for their company.

As more small businesses across the nation start to recognize the positive impacts that diversity offers individuals, teams, and businesses, the sooner small business entrepreneurs can dispose of discriminatory practices once and for all, creating a new norm that is both ethical, satisfactory and focuses on the true development of its workers and its industry. Not only will this improve business relationships, but it will also drive our need for the diversification of thought in our work.

About the Author(s)

Jake Croman is an entrepreneur, philanthropist and college student who currently attends the University of Michigan. Jake Croman's networking experience and logistical know-how extends to his work fundraising on behalf of charitable organizations such as St Judes Children's Hospital and the Eddie Croman Foundation.